02387cam a22002777 4500001000700000003000500007005001700012008004100029100001600070245013600086260006600222490004200288500001900330520104300349530006101392538007201453538003601525690018501561690012601746700001801872700002501890710004201915830007701957856003802034856003702072w18840NBER20161210002649.0161210s2013 mau||||fs|||| 000 0 eng d1 aErel, Isil.10aDo Acquisitions Relieve Target Firms' Financial Constraints?h[electronic resource] /cIsil Erel, Yeejin Jang, Michael S. Weisbach. aCambridge, Mass.bNational Bureau of Economic Researchc2013.1 aNBER working paper seriesvno. w18840 aFebruary 2013.3 aManagers often claim that an important source of value in acquisitions is the acquiring firm's ability to finance investments for the target firm. This claim implies that targets are financially constrained prior to being acquired and that these constraints are eased following the acquisition. We evaluate these predictions on a sample of 5,187 European acquisitions occurring between 2001 and 2008, for which we can observe the target's financial policies both before and after the acquisition. We examine whether target firms' post-acquisition financial policies reflect improved access to capital. We find that the level of cash target firms hold, the sensitivity of cash to cash flow, and the sensitivity of investment to cash flow all decline significantly, while investment significantly increases following the acquisition. These effects are stronger in deals that are more likely to be associated with financing improvements. These findings are consistent with the view that acquisitions ease financial frictions in target firms. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aG32 - Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill2Journal of Economic Literature class. 7aG34 - Mergers • Acquisitions • Restructuring • Corporate Governance2Journal of Economic Literature class.1 aJang, Yeejin.1 aWeisbach, Michael S.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w18840.4 uhttp://www.nber.org/papers/w1884041uhttp://dx.doi.org/10.3386/w18840